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property, which they claimed they acquired on February 9, 1989,
that on the date of that sale they had a basis of $40,721 in that
property interest, “Depreciation (or depletion) allowed or
allowable” of $4,036, and an “Adjusted basis” of $36,685, and
that they realized “Total gain” from that sale of $11,315.
The 1993 joint return also included Schedule E in which
petitioner and Ms. Brodsky reported the Sanchez Street property
as rental property. In Part I of the 1993 Schedule E, petitioner
and Ms. Brodsky claimed only “Rental and Royalty Expenses” with
respect to that property. In that part of that schedule, they
claimed “Total expenses” and “Deductible rental real estate loss”
of $688 and “Total rental real estate and royalty income and
(loss)” of ($688) with respect to the Sanchez Street property.
In Part II of the 1993 Schedule E, Income or Loss From Partner-
ships and S Corporations, petitioner and Ms. Brodsky claimed
$15,768 of “Nonpassive income from Schedule K-1" from MZ Trading.
MZ Trading’s Return for 1993
MZ Trading filed Form 1065, U.S. Partnership Return of
Income (Form 1065), for 1993, which reported that MZ Trading
started business on April 1, 1993. In the 1993 Form 1065, MZ
Trading reported “Gross receipts or sales” of $655,334, “Cost of
goods sold” of $576,189, and “Total income” of $79,145.
Respondent’s Examination of Certain Returns
Sometime in 1990, respondent assigned Kathleen Rodegeb (Ms.
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